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# Paying off interest while in school - question

Author Message
Director
Joined: 20 May 2013
Posts: 599

Kudos [?]: 285 [0], given: 54

Location: United States
Concentration: Strategy, Finance
GMAT 1: 750 Q49 V44
Paying off interest while in school - question [#permalink]

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03 Jun 2014, 11:00
Can someone explain to me the advantage of paying off loan interest while in school, as opposed to just taking out less money? I understand there is a tax advantage to paying off interest in school, but I don't see how they outweighs just taking out less money.

Namely why is taking out \$58k and paying \$3k in interest better than taking out \$55k and letting interest accrue?

Kudos [?]: 285 [0], given: 54

Senior Manager
Joined: 25 Jun 2012
Posts: 382

Kudos [?]: 200 [0], given: 13

Concentration: General Management
Re: Paying off interest while in school - question [#permalink]

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03 Jun 2014, 11:16
I've been trying to understand this as well.
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Kudos [?]: 200 [0], given: 13

Current Student
Joined: 30 Jan 2010
Posts: 301

Kudos [?]: 140 [0], given: 73

Location: United States
Concentration: Strategy, Economics
Schools: Chicago Booth - Class of 2015
WE: Project Management (Real Estate)
Re: Paying off interest while in school - question [#permalink]

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03 Jun 2014, 20:49
Banks typically offer lower rates for full-pay or interest-only payments while still in school. For some lenders, I found it 0.25% cheaper for interest only (compared to fully deferred) and another 0.25% for full pay. For one of the lenders I ended up selecting, the discount for interest-only was 1.18%.

Kudos [?]: 140 [0], given: 73

Director
Joined: 20 May 2013
Posts: 599

Kudos [?]: 285 [0], given: 54

Location: United States
Concentration: Strategy, Finance
GMAT 1: 750 Q49 V44
Re: Paying off interest while in school - question [#permalink]

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04 Jun 2014, 06:23
so if I wasn't offered a lower interest rate, there's no advantage?

Kudos [?]: 285 [0], given: 54

Senior Manager
Status: busyness school student
Joined: 09 Sep 2013
Posts: 419

Kudos [?]: 301 [0], given: 145

Location: United States
Schools: Tepper '16 (M)
GMAT 1: 730 Q52 V37
Re: Paying off interest while in school - question [#permalink]

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04 Jun 2014, 06:33
Correct.

For CitizensBank, the difference in interest rate between Deferred and Immediate/Interest Only is a whopping 0.75% - 1.75%. Interest Only seems to be the way to go (at least in my case with CitizensBank)
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Kudos [?]: 301 [0], given: 145

Re: Paying off interest while in school - question   [#permalink] 04 Jun 2014, 06:33
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